We document a large and consequential bias in how Americans perceive the major political parties: people tend to considerably overestimate the extent to which party supporters belong to party-stereotypical groups. For instance, people think that 32% of Democrats are LGBT (vs. 6% in reality) and 38% of Republicans earn over $250,000 per year (vs. 2% in reality). Experimental data suggest that these misperceptions are genuine and party specific, not artifacts of expressive responding, innumeracy, or ignorance of base rates. These misperceptions are widely shared, though bias in out-party perceptions is larger. Using observational and experimental data, we document the consequences of this perceptual bias. Misperceptions about out-party composition are associated with partisan affect, beliefs about out-party extremity, and allegiance to one’s own party. When provided information about the out-party’s actual composition, partisans come to see its supporters as less extreme and feel less socially distant from them.